Similar sized city comparisons
Strong core In contrast to many urbanized areas, Pittsburgh has a strong urban core with a large number of jobs inside the city limits. However, the city must provide services and infrastructure for people commuting into the city, as well as for its residents. A high "workday" population means increased costs for city services and infrastructure, with the greatest percentage of those costs borne by city residents. Employment levels in the city have remained relatively stable while population has declined. Nearly 325,000 people work in Pittsburgh. Almost two-thirds of them live outside the city. Pittsburgh imposes a 1% earned income tax on non-resident commuters, but very few commuters actually pay this tax because it's offset by the earned income tax in their home municipalities. Pittsburgh's occupational privilege tax is a flat, annual tax. It was raised from $10 to $52 in November 2004 with the bailout. Compared with other major cities its size, Pittsburgh's is among the lowest of "commuter" taxes. Other cities such as Philadelphia, Cincinnati, Cleveland, St. Louis, and Louisville-Jefferson County have commuter taxes based on income. Tax burden on employers. For-profit businesses that own property pay the property tax, while non-profit organizations largely don't. Some for-profit businesses pay the business privilege tax, but others - such as manufacturers, banks, utilities, and securities brokers - are exempt under state law. Wholesalers and retailers pay the mercantile tax. Entertainment businesses pay the amusement tax. About one-third of Pittsburgh's assessed value (about $6.2 billion) is tax-exempt because it's owned by government or non-profit entities. In 2002, Pittsburgh estimated that it "lost" $64.9 million in property taxes annually not paid by tax-exempt entities. The government, charitable non-profit, utility and other tax-exempt entities are major employers, employing 40% of those working in the city. Cities often are host to a concentration of tax-exempt properties, from courthouses and parks to hospitals and universities. For instance, in cities like Cincinnati, Philadelphia, Boston, Erie and Columbus over 20% of the tax base is exempt. In Johnstown and Harrisburg, over 40% of the tax base is exempt. Pittsburgh's debt burden Pittsburgh's debt service represented 16.3% of total 2002 operating expenditures and is projected to exceed 23% in 2004. Standard and Poor's, which issues benchmark measures on debt, considers a ratio of debt service to operating expenditures in excess of 15% to be high. The city regularly borrowed and retired debt for capital projects. However, until the last few years, the city borrowed more than it retired to maintain infrastructure in an aging city. The rate at which the city pays off debt is also important. "Best practice" communities pay off 65% or more of existing debt within 10 years. Pittsburgh currently is scheduled to pay off its debt less rapidly -- 55.8% in 10 years. To manage this rate of repayment, the city's debt service levels will continue to increase through 2006 and will remain high until 2012, even if the city takes on no additional debt. Pittsburgh's significant unfunded pension liability. Years of operating retirement systems on a pay-as-you-go basis left the city with accumulated unfunded liabilities totaling $515 million in 1995. The city issued $326 million in pension obligation bonds in 1996 and 1998 to bring down that unfunded liability. By 2002 only 51% of the Pittsburgh's pension plan obligation was funded, down from 67% in 2000, due to worsening market performance, decreasing state aid, and increasing pension benefits. According to Fitch, a bond rating service, a funding ratio that drops below 60% raises concerns "about an issuer's fiscal future." The schedule of the city's pension plan contributions is dramatically increasing as the city follows a formula designed to amortize the unfunded liability. In 2000, the city contributed $7 million; for 2004, the City has budgeted a payment of $17.2 million, the city's minimum municipal obligation of $30.6 million less anticipated state pension aid. The minimum obligation could rise to over $45 million, less any state pension assistance, after 2004. The impact of many years of structural deficits, depending on one-time sources of revenue, refinancing to buy time to repay debt and pension liabilities, and state policies and mandates contribute to the city's high unfunded liability, indebtedness and tax burden on its residents. Counterproductive tax structure. Source: Issues PA jake Raising more revenues from whatever source will not fix the city's problems. City Controller Tom Flaherty continues to claim that Pittsburgh's expenditures are not out of line with other cities across the country while criticizing research in this area ("City spending is 'average,'" April 7). He also used the forum to repeat his mantra that the city needs more revenue from nonresidents. His accusations? Our methodology did not count budgetary items in other cities that are counted in Pittsburgh, and we downplayed favorable information on police spending and staffing. First, we realize that cities budget in a variety of ways using an array of funds as placeholders for various revenue streams. But every city that we studied had a general fund, and general fund spending covered items such as city councils, the executive branch and public safety. That's why we used it as a general indicator of the level of spending on basic functions to compare the cities. We separated spending and staffing levels for police and fire to obtain specific city-to-city comparisons for these functions. But that's not enough for the controller because, in his words, "all cities do not budget their general funds in the same manner." Let's assume the controller's claims are correct and make the adjustments he suggests for Minneapolis and Milwaukee. Pittsburgh still spends $93 more per capita than Minneapolis and $208 more per capita than Milwaukee. Thus, if Pittsburgh were spending at the Milwaukee rate, its operating expenditures would fall $66 million per year compared to the current level -- more than enough to solve its fiscal crisis. Then too, Mr. Flaherty's assertion that we did not deem relevant or significant the fact that Pittsburgh was low on police spending and staffing when compared with other "Rust Belt" cities is completely wrong. Indeed, we took care to call attention to that fact. The direct quote from our publication was "Pittsburgh was quite low in the sample on police spending" and (on total police staffing per 1,000 people) Pittsburgh was "significantly lower than the group average." We did go on to point out that on fire spending and staffing, only Buffalo and Cincinnati were close to Pittsburgh' s extremely high levels of spending and only Buffalo exceeded Pittsburgh's staffing levels. Looking specifically at Buffalo, Cleveland and Cincinnati -- Pittsburgh's nearby "Rust Belt" neighbors -- we find that Pittsburgh's spending is $187 per capita higher than the three city average. Pittsburgh could reduce spending by $62 million if it matched the average of these three cities. Looking at faster growing cities of comparable population size across the country suggests that Pittsburgh's spending is $100 million too high. It is not useful to look for a few cities that spend more than Pittsburgh. It also is not useful to keep demanding more outside revenues. Raising more revenues from whatever source will not fix the city's problems. The financial problems will only be solved by focusing on spending. If Pittsburgh is ever going to be competitive economically, it must reduce expenditures to per capita levels more in line with cities that are prosperous. Finally, Mr. Flaherty takes us to task because our numbers for Cleveland don't match the budget numbers posted on Cleveland's Web site. That's very interesting since Cleveland's 2004 budget is not posted on its Web site. We called the Cleveland budget office to get the 2004 data. Jake Haulk, a Ph.D. economist, is president of the Allegheny Institute for Public Policy. Eric Montarti is a policy analyst there.